Holiday sales show promise, hurdles for retailers

Retailers, economists and industry analysts all expect holiday sales this year to surpass 2011 totals, meaning the sluggish economy won’t be playing the role of Grinch. Deeper in the expected sales numbers, however, are trends that highlight an uneven recovery and turmoil in the retail sector.

The 2012 holiday season got off to a strong start, with better than expected sales during Black Friday and the subsequent Thanksgiving weekend. The National Retail Federation said that shoppers spent $59.1 billion on Black Friday and the following weekend. Sales were up, but by less than last year’s increase.

“Our data from the weekend show more people were out each day of the weekend,” said Kathy Grannis, a senior spokeswoman for the federation, which represents the nation’s largest retail chains.

The group expects holiday sales overall to increase by 4.1 percent, to about $586.1 billion, compared with an increase of 5.6 percent last year. Forecaster IHS Global Insight expects holiday retail sales to increase 3.9 percent over last year.

Either way, that means big retailers expect things won’t grow as much as last year but still will outpace the year-over-year average increase of 3.5 percent over the past decade.

The strong holiday weekend was followed a solid Cyber Monday. Online sales on Cyber Monday grew by 30.3 percent over the same day last year, according to IBM, which tracks these sales with its IBM Smarter Commerce program. Across the entire season, online retail sales over this holiday period are expected to beat last year’s online sales by about 17 percent, according to IHS.

“On the online side, things are picking up at a more rapid pace,” said Chris Christopher, director of U.S. Consumer Markets for IHS.

However, the average online order value fell to $185.12 from $198.26, IBM said Tuesday.

Big retailers such as Target Corp. and Wal-Mart Stores Inc. have aggressively expanded their online presence, trying to win back market share from Amazon.com. But many consumers continue to play big retail chains off of online competitors in a search for the lowest price, and this favors online sales, Christopher said.

“I think this year you’re sort of seeing an acceleration of the online sales, and the brick-and-mortar (retailers) are starting to show not that much momentum anymore,” said Christopher, adding that “it’s on the price-point side that brick and mortar can’t compete with the cyber stores. You get the feeling they’re going to take a pretty strong hit on the (profit) margins.”

Nowhere is that more evident than at department stores, which is struggling to attract younger web savvy customers. Younger shoppers steer clear of department stores, shop online in greater numbers and are forcing department chains such as J.C. Penney Co. and others to experiment with new business models.

It means department stores are slashing prices, hurting profit margins, and searching for right-priced products to avoid having to discount.

“Their customer base is getting older. They’re struggling to maintain full margins, and retail price points in fashion apparel. They’ve gone on the slippery slope of discounting and they don’t know how to get back or if they’ll get back,” said Ted Hurlbut, a Boston-based consultant on retail strategies. “They are trying to find a sustainable business model, and to be perfectly blunt about it they realize they cannot continue, on an ongoing basis, to continue to slash their business margins.”

In recent months, retail sales have beat expectations and several gauges of consumer sentiment have been positive. That latest indicator came Tuesday, when the Conference Board reported that its index of consumer confidence registered its highest reading since February 2008, just months before the brutal financial crisis hit.

“The rise in confidence was entirely due to a gain in expectations,” economists at RDQ Economics in New York said Tuesday in a research note.

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Confidence is expected to translate into looser purse strings. On top of that, inflation has been tame this year, with falling gas prices giving some consumers more of their paycheck to spend elsewhere. Paychecks are stretching a bit farther.

“Those things are helping out consumers quite a bit,” said Christopher of IHS.

But as a sign of the unevenness of the economic recovery, transaction counts earlier this year at retail establishments are down but per-transaction amounts are up, according to Hurlbut.

“The customers that are in stores are spending more than they have in the past, and they are buying more expensive goods, and I would expect that to continue,” he said, noting the yearlong trend of fewer customers who are nonetheless spending more. “That’s an indicator of an uneven recovery. That is across all sectors. That suggests to me that . . . there are segments of the population that are at minimum behaving like they are still in a recession.”

Wal-Mart and Target, which cater to lower-income and middle-income shoppers, have struggled to grow profits, as many of their customers face flat wages and job insecurity.

Still, at least for the start of holiday season, it’s beginning to feel a lot like Christmas for retailers. Initial sales numbers exceeded expectations. But there’s the looming showdown in Washington over possible tax increases, debt and deficits. Politics can still influence shopper behavior in coming weeks.

“All of this goes to how confusing it really is right now,” said Grannis of the retail federation. “We’re seeing positive retail sales, and consumer sentiment is up. But spending is conservative.”